Question

PLEASE show you work so it is easier to undersand, thank you!!

There are two parts to this problem a) & b)
A company made the following expenditures in connection with the construction of a new building:
Architect’s fees	$12,000
Cash paid for land and unusable building on the land	300,000
Removal of old building	18,000
Salvage from sale of old building materials	-4,000
Construction survey	1,500
Legal fees for title search	3,000
Excavation for basement construction	25,000
Machinery purchased for operations	100,000
Freight on machinery purchased	1,600
Construction costs of new building	1,000,000
Construction of parking lot and driveway	33,000
Install perimeter fencing	7,500
Installation of machinery	2,500
a) Required: Prepare a schedule showing the amounts to be recorded as Land, Land Improvements, Buildings, and Machinery.
(See pages 355 &356 Cost Determination for how to determine)
	Land	Land Improv	Buildings	Machinery
Architect’s fees
Cash paid for land and unusable building on the land
Removal of old building
Salvage from sale of old building materials
Construction survey
Legal fees for title search
Excavation for basement construction
Machinery purchased for operations
Freight on machinery purchased
Construction costs of new building
Construction of parking lot and driveway
Install perimeter fencing
Installation of machinery
Useful life	Indefinate	15 years	40 years	10 years
Salvage		$5,000	$250,000	$25,000
Depreciation method		DDB	SL	DDB
(DDB - double declining balance, SL - straight line)
Assume that all assets are put in service on 7-1-16
b) Required: Calculate straight line for the Building in 2016 & 2017
Prepare depreciation schedules for the life of Land Improvements & Machinery     (Round everything to a dollar)
(Straight-line is on pages 358 & 359) (Double Declining Balance is on pages 360 & 361) (Partial year depreciation - page 362)
Building
2016
2017
Land Improvements
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
Machinery
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026

Answer 1

My dear!

Hope you're doing well and enjoying your studies. I'm glad to help you learn more. Please find below the solution to your above question. If you find any alignment issues in the text below, please make use of attached image.

Solution: Asset Capitalization and Depreciation
Expenditures	Amount	Explanations for Classification
Architect’s fees	$                    12,000	Being architect will be the person who plans and designs the construction of building, we have to consider this expenses as part of Buildings.
Cash paid for land and unusable building on the land	$                  300,000	As said the existing building over the land is unusable, we can conclude the that the said amount is completely towards the price of Land.
Removal of old building	$                    18,000	Cost of removal of old building has to be accounted as Land being it is part of making the land ready for intended purpose.
Salvage from sale of old building materials	$    (4,000)	This is to be decrease in the total of cost of Land for the same reason mentioned in the above line.
Construction survey	$    1,500	As it will be part of construction of new building, we should account it along with the cost of Building construction.
Legal fees for title search	$    3,000	Being this is legal fees with respect to purchase of land, we have to capitalize this as part of Land.
Excavation for basement construction	$                    25,000	As it will be part of construction of new building, we should account it along with the cost of Building construction.
Machinery purchased for operations	$                  100,000	This expense directly comes under Machinery and need to be capitalized so.
Freight on machinery purchased	$                       1,600	Being this is related to purchase of machinery, we have to add this along with price of Machinery.
Construction costs of new building	$               1,000,000	This expense directly comes under Buildings and need to be capitalized so.
Construction of parking lot and driveway	$                    33,000	This cannot be assume as part of building as well land, but to be accounted as Land Improvements having definite life.
Install perimeter fencing	$                       7,500	This cannot be assume as part of building as well land, but to be accounted as Land Improvements having definite life.
Installation of machinery	$                       2,500	Being this is related to purchase and installation of machinery, we have to add this along with price of Machinery.
Answer to Part (a) - Required: Prepare a schedule showing the amounts to be recorded as Land, Land Improvements, Buildings, and Machinery.
Expenditures	Land	Land Improv	Buildings	Machinery
Architect’s fees			$                    12,000
Cash paid for land and unusable building on the land	$                  300,000
Removal of old building	$                    18,000
Salvage from sale of old building materials	$                     (4,000)
Construction survey			$                       1,500
Legal fees for title search	$                       3,000
Excavation for basement construction			$                    25,000
Machinery purchased for operations				$                  100,000
Freight on machinery purchased				$    1,600
Construction costs of new building			$               1,000,000
Construction of parking lot and driveway		$                    33,000
Install perimeter fencing		$    7,500
Installation of machinery				$                       2,500
Total	$                  317,000	$                    40,500	$              1,038,500	$                  104,100
Answer to Part (b) - Required:
> Calculate straight line for the Building in 2016 & 2017
> Prepare depreciation schedules for the life of Land Improvements& Machinery (Round everything to a dollar)
Explanations of Straight Line Depreciation of Building:
Formula for Straight Line Method of Depreciation = [Total Asset Value minus Salvage Value] divided by Useful Life.
Here, in the case of Building, Depreciation = [$1,038,500 minus $250,000] divided by 40 years = $19,713 per year.
However, as said in the problem, the assets were put in service on Jul 01, 2016 onwards.
Hence, the depreciation for the first year (2016) to be proportioned accordingly.
So, number of months from Jul 01, 2016 to Dec 31, 2017 are 06 months.
Therefore, depreciation on building for the first year = $19,713 * 6 months / 12 months = $9,856.
Whereas, from the second year onwards, the depreciation to be provided for full months.
Building	Amount	Calculation
2016	$                       9,856	(1038500-250000)/40*6/12
2017	$                    19,713	(1038500-250000)/40
Explanations of Double Declining Balance (DDB) Depreciation of Land Improvements:
Formula for DDB Depreciation = 2 multiplied by Straight Line Depreciation Rate multiplied by Book Value at the Beginning of the year.
Given that the useful life of Land Improvements is 15 years.
Therefore, Straight Line Depreciation Rate = Straight Line Depreciation per Year divided by Total Asset Value multiplied by 100
Here, Straight Line Depreciation per Year = Total Asset Value divided by Useful Life = $40,500 / 15 years = $2,700.
Then, Straight Line Depreciation Rate = $2,700 / $40,500 * 100 = 6.67%
So, 2 multiplied by Straight Line Depreciation Rate = 2 * 6.67% = 13.34%
Application of formula of DDB Depreciation (as said above) in the below table:
Land Improvements	Book Value (at year start)	2 * Straight Line Depreciation Rate	Depreciation	Book Value (at year end)	Depreciation Calculation for your reference
2016	$                    40,500	13.34%	$                       2,701	$                    37,799	(Book Value at year start * 13.34% * 6 / 12)
2017	$                    37,799	13.34%	$                       5,042	$                    32,756	(Book Value at year start * 13.34%)
2018	$                    32,756	13.34%	$                       4,370	$                    28,387	(Book Value at year start * 13.34%)
2019	$                    28,387	13.34%	$                       3,787	$                    24,600	(Book Value at year start * 13.34%)
2020	$                    24,600	13.34%	$                       3,282	$                    21,318	(Book Value at year start * 13.34%)
2021	$                    21,318	13.34%	$                       2,844	$                    18,474	(Book Value at year start * 13.34%)
2022	$                    18,474	13.34%	$                       2,464	$                    16,010	(Book Value at year start * 13.34%)
2023	$                    16,010	13.34%	$                       2,136	$                    13,874	(Book Value at year start * 13.34%)
2024	$                    13,874	13.34%	$                       1,851	$                    12,023	(Book Value at year start * 13.34%)
2025	$                    12,023	13.34%	$                       1,604	$                    10,419	(Book Value at year start * 13.34%)
2026	$                    10,419	13.34%	$                       1,390	$                       9,029	(Book Value at year start * 13.34%)
2027	$                       9,029	13.34%	$                       1,205	$                       7,825	(Book Value at year start * 13.34%)
2028	$                       7,825	13.34%	$                       1,044	$                       6,781	(Book Value at year start * 13.34%)
2029	$                       6,781	13.34%	$                          905	$                       5,877	(Book Value at year start * 13.34%)
2030	$                       5,877	13.34%	$                          784	$                       5,093	(Book Value at year start * 13.34%)
2031	$                       5,093	13.34%	$                            93	$                       5,000	(Adjusted to keep the salvage value $5,000)
Please note that the first year depreciation has to proportioned for 06 months considering the date of asset put to service.
Also, please note that the depreciation should be stopped when the book value equals the expected salvage value.
In the above case, being given the salvage value as $5,000, the last year depreciation is limited to $93 than at the normal rate.
Explanations of Double Declining Balance (DDB) Depreciation of Machinery:
In the same way what we done for the calculation of depreciation of Land Improvements, we can do for Machinery.
(Unable to explain the same here again due to time limit of 120 minutes)
That give the results as in the below table.
Machinery	Book Value (at year start)	2 * Straight Line Depreciation Rate	Depreciation	Book Value (at year end)	Depreciation Calculation for your reference
2016	$                  104,100	20.00%	$                    10,410	$                    93,690	(Book Value at year start * 20% * 6 / 12)
2017	$                    93,690	20.00%	$                    18,738	$                    74,952	(Book Value at year start * 20%)
2018	$                    74,952	20.00%	$                    14,990	$                    59,962	(Book Value at year start * 20%)
2019	$                    59,962	20.00%	$                    11,992	$                    47,969	(Book Value at year start * 20%)
2020	$                    47,969	20.00%	$                       9,594	$                    38,375	(Book Value at year start * 20%)
2021	$                    38,375	20.00%	$                       7,675	$                    30,700	(Book Value at year start * 20%)
2022	$                    30,700	20.00%	$                       6,140	$                    24,560	(Book Value at year start * 20%)
2023	$                    24,560	20.00%	$                       4,560	$                    20,000	(Adjusted to keep the salvage value $25,000)
2024	$                    20,000	20.00%	$                             -	$                    20,000	(Adjusted to keep the salvage value $25,000)
2025	$                    20,000	20.00%	$                             -	$                    20,000	(Adjusted to keep the salvage value $25,000)
2026	$                    20,000	20.00%	$                             -	$                    20,000	(Adjusted to keep the salvage value $25,000)
Please note that the first year depreciation has to proportioned for 06 months considering the date of asset put to service.
Also, please note that the depreciation should be stopped when the book value equals the expected salvage value.
In the above case, being given the salvage value as $25,000, the is limited to $4,560 than at the normal rate of the year 2023.
For the next 03 years, the depreciation amount should be Zero.

If you need any clarifications, please let me know! Your feedback is highly important!

?Best wishes!